Question

Sally's monthly fixed costs for her business typically include rent and salaries. Within the relevant range, if she sells more this month than last month, the fixed cost per unit will

Option 1: Decrease
Option 2: Increase
Option 3: Remain the Same
Option 4: Fluctuate

Answer 1

If Sally sells more this month than last month, the fixed cost per unit will decrease because fixed costs like rent and salaries stay constant regardless of the number of units sold.

Step-by-step explanation:

Regarding Sally's business and her monthly fixed costs, which typically include items like rent and salaries, the question asks what happens to the fixed cost per unit if she sells more this month compared to last month. Fixed costs, by definition, do not change with the volume of goods produced or sold. Therefore, when a business sells more units, the fixed cost per unit will decrease.

Fixed costs such as rent remain constant regardless of the production level or sales volume within the relevant range. For example, if the Yoga Center pays a fixed rent of $10,000 per month, this amount does not change whether they have clients or not. However, on a per-unit basis, as the number of units (or clients in this context) increases, the fixed cost allocated to each unit decreases.